WEAKNESSES

Low-skilled local labour force and large-scale emigration of educated workers

Sensitive to weather events (region severely affected by hurricanes)

Territorial dispute with Venezuela

Reliance on international creditors

High crime rate linked to drug trafficking against a background of poverty and corruption (ranked 93/180 by Transparency International's Corruption Perceptions Index in 2018)

RISK ASSESSMENT

Emerging oil industry to boost the economy

The commencement of oil production should pave the way for exceptional growth in activity in 2020. An offshore oil field was discovered by the American company Exxon-Mobil off the coast of Guyana in 2015. Since then, explorations have revealed much higher quantities of oil than initially announced, at more than 6 billion barrels. This sector will become a key source of growth by the first quarter, which should see 120,000 barrels of crude oil extracted and marketed per day.

At the same time, Guyana is experiencing solid non-oil growth, based on an expansion across all the country’s major sectors that is expected to continue in 2020. Construction is set to be boosted by substantial private and public investment in infrastructure projects related to oil activity (including roads and electrical installations). Growth should also be driven by agricultural (rice), fishing (shrimp) and mining (gold and bauxite) activities, whose production is largely export-oriented. Sugar production is expected to continue to decline, but this should be offset by good performances in rice production thanks to the introduction of a new high-yielding variety last year. Mining production is also expected to increase (particularly gold) on the back of significant credit and road network development.

Inflation looks likely to accelerate following demand pressures, but household consumption, supported by economic activity and remittances from Guyanese expatriates, is not expected to be affected.

With oil revenues yet to kick in, the external deficit persists

The budget deficit is expected to disappear almost entirely. Although this will be partly thanks to increased revenues, resulting from better tax collection following steps to modernise the tax administration, the key factor will be taxes and royalties linked to oil production. Spending is set to increase, but at a slower pace, as the government pursues its expansionary policy of major infrastructure investment and sugar sector restructuring. The debt burden (two-thirds foreign, but contracted with multilateral donors at concessional rates) as a proportion of GDP will decrease significantly, reducing insolvency risk. In addition, the risk of an “oil curse” associated with the economy’s transformation is expected to be mitigated by the creation in July 2019 of the Natural Resource Fund (NRF), a sovereign wealth fund responsible for managing oil revenues in a transparent and fiscally responsible manner. To this end, the country has also joined the Extractive Industries Transparency Initiative.

Looking at the external accounts, the structural trade deficit should narrow owing to the substantial increase in exports with the start of oil activity. While the country has previously relied on the agricultural and mining sectors to support its current account, the emerging oil industry will be the main source of export growth in 2020. However, the net effect will be mitigated by massive imports of the capital goods necessary for oil extraction. Remittances from expatriate workers (11.5% of GDP in 2018) are expected to continue to increase. As imports and exploration activities are financed by foreign companies, FDI (6.5% of GDP) will increase rapidly and finance the current account deficit. Exchange rate flexibility remains on the monetary authorities' agenda as they seek to improve the adjustment to exogenous shocks.

A tense political climate

The country has been controlled since 2015 by President David Granger, who heads a multi-ethnic coalition led by two parties, APNU and the AFC. His government has carried out structural reforms to improve the business environment and fight corruption, in order to maximise opportunities related to oil development. Despite this, the business environment remains risky, with the country ranked 134th out of 190 in the World Bank's Doing Business 2020 ranking. In December 2018, Parliament passed a motion of no confidence in the government, which, after a court battle lasting several months, was finally declared valid by the Caribbean Court of Justice (Guyana's highest appellate body) in June 2019. The next elections, scheduled for March 2020, promise to be very competitive between the presidential coalition and the PPP/C (the party that held power from 1992 to 2015).

Despite an international decision fixing the current borders, in 2015 Venezuelan President Nicolas Maduro affirmed his country's sovereignty over nearly two-thirds of Guyana's territory and maritime area. This followed news of the discovery of the oil field in the disputed area off the coast of Guyana, rekindling a dispute that is already over a century old. The UN granted the two countries a negotiation period (until the end of 2017), but this failed to resolve the conflict, which is expected to intensify with the start of oil production in 2020. The case is now before the International Court of Justice.